Tobacco industry ready for change

Tobacco producers may want to swear off the word change before it's over, but they can expect more. Talk of a buyout opens up a box of questions whose answers lay at the foundation of how the tobacco industry will operate once change is out of the box.

As in previous hot topics, a buyout would require support from outside “the family.” There's also the question of, “Where will the money come from?” Like a doctor discussing surgery, this issue isn't an elective one.

The president of the North Carolina Farm Bureau offers at least five reasons why a buyout is necessary, but he also points out that what's really being talked about is the dismantling of the most successful farm support program in USDA history.

“I think farmers need to understand that this is a very serious issue,” Wooten said at a conference on “What Lies Down Tobacco Road” at the Cape Fear Museum in Wilmington, N.C., and in an interview with Southeast Farm Press.

“We're looking at dismantling the most successful safety net in the history of the USDA. If you step on this slippery slope, you don't stop until you get to the bottom. There are risks associated with heading down this road.”

When Vector Tobacco contracted with farmers outside of the traditional tobacco areas last season to produce GMO tobacco, it created concern among quota growers from Virginia to Florida. The concern won't likely go away, Wooten says.

Already, Wooten is receiving calls from law firms in eastern North Carolina, inquiring for farmers who want to grow the GMO tobacco. “I told them that in 2002 if you grow tobacco in a quota state, it is considered quota tobacco, so you can't grow GMO tobacco,” he explained. “It's protected right now, but I don't know what it will be like in 2003.”

Wooten calls the GMO issue, “the biggest threat we have in terms of controlling the types of tobacco grown.” It opens up the possibility of proprietary strains of tobacco used to enhance flavors as well as for medical purposes.

Export customers of U.S. tobacco say they don't want GMO tobacco. “The possibility of GMO tobacco being introduced into the supply is likely,” Wooten says. “There are severe risks to co-mingling of GMO tobacco and non-GMO tobacco. That would have an impact on our export markets.”

He believes the most likely way to control GMO tobacco would be through contracting by the tobacco companies.

About 80 percent of the flue-cured tobacco producers signed contracts with cigarette manufacturers last year. And the bottom dropped out of the tobacco warehouse system.

The Flue-Cured Stabilization Cooperative opened two marketing centers to offer growers an alternative. Stabilization plans to open 14 centers across the flue-cured belt this season.

“There's a window of opportunity to assure that our farmers have an alternative to contracting,” Wooten says. “We must have a viable alternative to contracting…for our farmers who choose not to contract or may not be offered a contract. Many of our export purchasers like the ability to selectively choose the types of tobacco they want in an auction setting.”

In the future, telemarketing may play a role in tobacco sales, Wooten suggests. “There are a lot of possibilities.

While everyone is talking about a quota buyout, the question remains, “Where will the money come from?” Wooten asks.

The answer: From the cigarette manufacturers. But for a buyout to work, “There will have to be four winners.”

The farmers, the government, the cigarette manufacturers and the health groups must receive benefits for a buyout to work, Wooten says.

The obvious reason for farmers rests in an acceptable price.

For the government to pass a buyout through Congress, support must come from states outside of the traditional tobacco growing regions. At the Tobacco Growers Association of North Carolina in Raleigh in mid-February, U.S. Sen. Jesse Helms, (R-N.C.) said via video that those outside of the tobacco states will largely decide the issue.

“It can't appear as a money-grab,” Wooten says. “It doesn't mean that the government will be out of the tobacco business, but it could mean no more CCC funds in terms of cooperatives and possibly no more FSA oversight of tobacco and marketing services and no more government subsidy of crop insurance for tobacco.

“Those are very serious issues that tobacco farmers may not be thinking about,” Wooten says.

Health groups will continue to have a seat at the tobacco table, Wooten says.

“If there's a production control or supply management after a buyout, it will be largely because health groups and farmers don't want tobacco grown all across the country, and because they feel that production limits will put stability in the industry,” Wooten says.

Health groups haven't attacked the price support program because it keeps the price high and limits production. Companies also openly support stability in the industry, but that doesn't mean they would be in favor of a price-support system, after a buyout occurs.

“The cigarette manufacturers will have to feel like they're going to win if they put up the money for the buyout,” Wooten says.

That leads to another reason for the buyout: Increasing the competitiveness of U.S. tobacco.

“A buyout would improve our competitive position in terms of exports,” Wooten says. “The price of U.S. tobacco would fall. Just how much exports would gain is unknown, but our price support is the umbrella over price around the world. As you lower that umbrella, prices will fall. As you lower the U.S. umbrella, prices will fall in our competing countries.

Cigarette manufacturers and government officials will largely decide the issue of FDA regulation, Wooten believes. But the cigarette manufacturers are at odds over the issue. Philip Morris is for FDA regulation, while the other major cigarette manufacturers are against it.

“The biggest hurdle to cross on the FDA issue is between the manufacturers themselves. The total industry would be better served if they could reach agreement among themselves without putting farm leadership in between them.”

“The jury is still out on just what FDA regulation would mean,” Wooten says. “Farmers don't want FDA intruding in their operations.”